Natural Gas Severance Tax

Pennsylvania is the only natural gas-producing state in the country without a severance tax on natural gas production. In 2012, the state enacted an “impact fee” on natural gas wells drilled into the Marcellus Shale formation; however, the fee generates a relatively small amount of revenue from the expanding gas industry. The Pennsylvania Budget and Policy Center forecasts that, using a “moderate” production scenario, the impact fee will bring in less revenue than a severance tax comparable to that of other natural gas giants Texas or West Virginia. As production increases over time, the gap will grow larger between the revenue generated at the West Virginia or Texas tax rates and from Pennsylvania’s impact fee.

As part of his 2016-17 budget, Governor Wolf proposed a 6.5% severance tax on natural gas production. This tax would have generated an estimated $217 million in revenue for Pennsylvania, enabling the funding of crucial programs that have suffered from budget cuts. But industry groups have continued their opposition to the proposal, and in the revenue bill (HB 1198) passed by the General Assembly in July 2016 a severance tax was not adopted.